GSK Braces For Impact: Advair Generic Could Reduce US Brand To £1Bn

Although it’s not yet clear if an interchangeable version of the respiratory blockbuster will be approved by FDA, CEO Andrew Witty prepared investors to expect a hit, forecasting that a mid-year launch could significantly reduce revenues.

GlaxoSmithKline PLC has enjoyed an extended life for its blockbuster respiratory brand Advair Diskus (fluticasone/salmeterol) beyond its patent expiry and transitioned patients to newer medicines in the interim, but the company might be about to hit the end of the road on Advair’s exclusivity in the US.

During the company’s fourth quarter earnings call Feb. 8, CEO Andrew Witty braced investors to expect a substantial hit to revenues from the potential launch of an interchangeable generic in the US later this year.

The quarterly financial update was the last financial call led by Witty, who will be succeeded by Emma Walmsley on April 1. Throughout his nine-year tenure at the helm of the UK drug maker, he was dogged by the risk posed by a potential generic launch and the resulting overhang on the company’s stock. He spent much of his leadership run preparing the company for generic competition and trying to minimize the impact, with a focus on launching new respiratory drugs and diversifying outside of pharmaceuticals.

Walmsley, the former consumer health president, will be the one to see GSK through what could be a challenging period. Pricing pressure on Advair from payers and increased competition, as well as new respiratory launches, have reduced GSK’s dependence on Advair in the last three years. Nonetheless, a generic launch will still have a significant impact on the company’s sales and earnings in 2017.

A US generic launch mid-year could reduce Advair’s sales in the US to £1bn ($1.25bn) from £1.83bn ($2.32bn) in 2017, the company said.

GSK forecast core earnings per share growth of 5% to 7% in 2017 at constant exchange rates – but that is without a generic entering the market. A mid-year launch of a substitutable generic competitor to Advair would result in flat to declining core EPS. Even if a generic doesn’t reach the market, the guidance assumes a continued decline in sales of Advair in the US of 15% to 20%.

“It’s now a real possibility that a substitutable generic to Advair could be launched in the US during 2017,” Chief Financial Officer Simon Dingemons said. “While the timelines for the introduction of a generic are far from clear and its impact will depend heavily on the pricing strategy and supply capacity deployed, we’ve assessed a number of scenarios in our planning for this year.”

The uncertainty around the availability of a generic is because it’s not clear if FDA will approve a substitutable generic on a first-cycle review because of the complexity of developing respiratory drugs. (Also see "Advair: A Big Generic Opportunity And A Big Question Mark In 2017" - Scrip, 29 Dec, 2016.) Two drug makers, Mylan NV and Hikma Pharmaceuticals PLC, have confirmed they have ANDA filings pending at FDA, with action dates of March 28 and May 10, respectively. They and other generic manufacturers, including Teva Pharmaceutical Industries Ltd. and Sandoz Inc., are eager to fill the void in a high-barrier-to-entry space.

Teva recently received FDA approval of a competitor to Advair through the 505(b)(2) regulatory pathway, rather than the traditional generic drug pathway. Although AirDuo includes the two active ingredients in Advair – fluticasone and salmeterol – it isn’t an interchangeable generic because it is delivered through Teva’s own RespiClick device rather than the same device used to deliver Advair. (Also see "Teva AirDuo Poised To Be A Discounted, But Not Interchangeable, Version Of Advair" - Scrip, 30 Jan, 2017.) As a result, the impact on the brand is expected to be muted, though Teva is developing what it hopes will be its own substitutable generic.

In 2016, sales of Advair declined 15% to £3.49bn ($4.38bn) on a global basis, GSK reported. Growth in new products, including Breo Ellipta, Anoro Ellipta and Nucala, offset the decline. New respiratory products generated sales of £1.05bn ($1.31bn) .The once-daily, next-generation inhaled corticosteroid/long-acting beta2 andrenergic agonist Breo, which got off to a slow start at launch, picked up the pace, generating sales of £620m ($777m)for the year, while the LABA/long-acting muscarinic antagonist Anoro generated £201m ($259.1m).

Pharmaceuticals revenues grew 3% to £16.04bn ($20.55bn) for the year on a reported basis, while Vaccines revenues grew 14% to £4.6bn ($5.76bn).

Witty kept the script of the conference call mainly to financials, even though it was his last one as CEO and despite the tumult in the US under the Trump Administration related to drug pricing, American manufacturing jobs, tax reform and the immigration ban. The company also did not address the leadership change at the top of the Pharmaceuticals unit announced in January, with President Global Pharmaceuticals Abbas Hussain leaving the company and being replaced by AstraZeneca PLC’s Luke Miels. (Also see "GSK US Pharma President Jack Bailey On A “Dynamic” 2017" - Scrip, 23 Jan, 2017.)

Management was asked about GSK’s manufacturing capabilities in the US and the implications of any border tax that might be implemented under a new administration.

He said GSK operates nine factories in the US and one of two global R&D centers and aims to produce drugs distributed in the US in the US.

“There are some technologies and bulk primary manufacturing and some vaccines …where there is one manufacturing site in the world that makes it and it is where it is,” Witty said. “I think we’re in a pretty good position.”